RENDERED: FEBRUARY 5, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2019-CA-1594-MR
CONSTANCE MOUANDA APPELLANT
APPEAL FROM JEFFERSON CIRCUIT COURT
v. HONORABLE SUSAN SCHULTZ GIBSON, JUDGE
ACTION NO. 19-CI-000283
JANI-KING INTERNATIONAL;
CARDINAL FRANCHISING, INC.,
D/B/A JANI-KING LOUISVILLE;
AND JANI-KING LEASING CORP. APPELLEES
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CALDWELL, GOODWINE, AND LAMBERT, JUDGES.
LAMBERT, JUDGE: Constance Mouanda has appealed from the June 25, 2019,
order of the Jefferson Circuit Court dismissing her wage and hour, breach of
contract, and fraud claims for failure to state a claim pursuant to Kentucky Rules of
Civil Procedure (CR) 12.02. We affirm.
Prior to addressing the allegations of the lawsuit underlying this
appeal, we shall set forth the respective parties and explain their roles. To do so,
we shall rely upon the relevant portions of the statement of facts in a motion to
dismiss filed below by two of the defendants, Jani-King International, Inc., and
Jani-King Leasing Corp. (the Jani-King defendants).
A. Jani-King International, Inc. and Its
Business Model
Jani-King International, Inc., (“JKI”) is a Texas
corporation that developed and maintains a proprietary,
comprehensive commercial cleaning system under the
brand “Jani-King.” Jani-King Franchising, Inc., (“JKF”)
is a subsidiary of JKI that sells the right to operate a Jani-
King sub-franchisor, which is commonly referred to as a
master franchisee, in an exclusive territory. Master
franchisees purchase a license to use the “Jani-King”
trademark, goodwill, and cleaning system in the
territories in which they operate. Master franchisees –
such as Defendant Cardinal Franchising, Inc., – in turn
sell Jani-King unit franchises to small businesses wishing
to operate a commercial cleaning franchise in the master
franchisee’s territory (“unit franchisees”). Master
franchisees train unit franchisees on the proper use of the
Jani-King proprietary information, and offer various
support services to unit franchisees, including securing
commercial cleaning contracts for them to service. The
Jani-King Defendants are not parties to any agreement
with a master or unit franchisee.
B. Jani-King Leasing Company
JKL is a Texas corporation that sells or leases
cleaning equipment (such as vacuum cleaners, auto-
scrubbers, burnishers, etc.) to unit franchisees, when such
equipment is needed. Unit franchisees, however, are not
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required to buy or lease equipment from JKL under their
respective franchising agreement. Rather, unit
franchisees are allowed to purchase the necessary
equipment to operate their Jani-King franchise from
whatever source they choose. JLK is not a party to any
regional or regional unit franchise agreement, nor has it
sold or leased any cleaning equipment in Kentucky in the
last three (3) years, including to the franchise owned by
The Matsoumou’s, LLC.1
C. Cardinal Franchising, Inc.
Cardinal Franchising, Inc., (“Cardinal”) is a
Kentucky corporation, which operates under the name
“Jani-King of Louisville.” Cardinal is a Jani-King master
franchisee and party to a regional franchise agreement
with JKF (the “Regional Agreement”). Under the
Regional Agreement, Cardinal purchased the exclusive
right to use the “Jani-King” name in Oldham, Shelby,
Jefferson, Spencer, Nelson, Bullitt, Hardin, Henry, and
Meade Counties in Kentucky; and Washington, Scott,
Clark, Floyd, Harrison, Jefferson, and Crawford Counties
in Indiana (the “Territory”). The Regional Agreement
also provides that Cardinal is responsible for ensuring
proper use of the “Jani-King” proprietary information in
the Territory; however, in the event Cardinal fails to do
so, JKF reserves the right to enforce any necessary
provisions in Cardinal’s unit franchise agreements. JKI
and JKL are parties to the Regional Agreement.
Moreover, Cardinal is a separate business entity and not a
subsidiary of JKI, JKF or JKL.
D. Plaintiff Constance Mouanda
Plaintiff formed the Company, which purchased
and operated a unit franchise of Cardinal. The Company
1
The Matsoumou’s, LLC (the “Company”) is a Kentucky limited liability company formed by
Plaintiff Constance Mouanda (“Plaintiff”) for the purpose of purchasing and operating a Jani-
King unit franchise. (Footnote 1 in original.)
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entered into a unit franchise agreement (“Unit
Agreement”) with Cardinal on February 28, 2018. The
Unit Agreement provides the Company with the right to
operate a franchise under the “Jani-King” name in the
Territory and use the Jani-King cleaning system and
proprietary marks licensed by Cardinal. JKI and JKL are
not parties to the Unit Agreement, nor did they
participate in the negotiations of its terms or otherwise
make any representations to Plaintiff or the Company
concerning the Unit Agreement. Cardinal holds the
accounts serviced by the Company and established the
sale price for the Company’s franchise. Neither JKI nor
JKL participated in these negotiations. While the
Company, as a franchisee of Cardinal, has the right to
implement a business model established by JKI, neither
the Company’s nor Plaintiff’s performance of cleaning
services is controlled by JKI or JKL. Additionally, while
JKI had the ability to enforce the Unit Agreement
between Cardinal and the Company to protect the “Jani-
King” branding, JKI was not obligated to pay the
Company or Plaintiff, and JKI’s status as the owner of a
national franchise brand did not make it a party to that
agreement.
(Citations to appendices omitted.)
In January 2019, Mouanda filed a complaint against Cardinal and the
Jani-King defendants for causes of action she alleged arose on February 28, 2018.
Mouanda, who is not a native English speaker, alleged that she entered into
agreements to become the owner of a Jani-King franchise on that day. In order to
do so, she made a $6,000.00 down payment and was guaranteed to earn $2,000.00
per month by the contract. She claimed that the agreements amounted to 50 pages,
which she did not have counsel review or have a reasonable opportunity to review
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herself. These documents, she alleged, included corporate resolutions, LLC
formation documents, and a franchise agreement setting forth the relationship
between her and Jani-King. She claimed that she was fraudulently induced to sign
the agreement, which required her to lease commercial cleaning equipment and
purchase cleaning materials from the defendants.
Mouanda alleged that Jani-King structures its business to avoid
providing its workers with employment law protections by deeming workers like
her as franchisees. She was not paid a minimum wage for her work in violation of
Kentucky Revised Statutes (KRS) 337.275 nor was she given information about
hours worked in violation of KRS 337.070. She was not paid what she had
bargained for. Mouanda claimed that the nature of the relationship between herself
and Jani-King was identical to an employment relationship. She alleged that the
contract she entered into with Jani-King was substantively unconscionable. As a
result, Mouanda alleged causes of action for fraud based upon the material
representations that she would earn over $2,000.00 per month, for a violation of
Kentucky’s minimum wage law, and for breach of contract based upon Jani-King’s
failure to offer her work that would provide her with $2,000.00 in income as
promised and its refusal to refund her $6,000.00 down payment. Mouanda sought
compensatory and punitive damages.
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In lieu of an answer, Cardinal filed a motion to dismiss Mouanda’s
complaint for failure to state a claim pursuant to CR 12.02. It argued that she
lacked standing to bring this cause of action because the franchise agreement was
between Cardinal as the franchisor and The Matsoumou’s, LLC as the franchisee.
Mouanda, individually, did not have a contractual relationship with Cardinal and
therefore could not bring suit against it. In addition, Cardinal asserted that
Mouanda was an independent contractor performing work for her LLC. Therefore,
she was not an employee, and Cardinal was not her employer. Cardinal also
argued that Mouanda failed to plead her fraud claim with particularity. In the
accompanying memorandum, Cardinal pointed out that the LLC had been
incorporated on November 11, 2017, well before the franchise agreement was
signed. The franchise agreement contained provisions in which Mouanda
acknowledged that she was an independent contractor and that no employment
taxes would be withheld by Cardinal.
The Jani-King defendants also filed a motion to dismiss for lack of
personal jurisdiction and for failure to state a claim upon which relief could be
granted pursuant to CR 12.02. They asserted that the circuit court could not
exercise jurisdiction over them because both entities were incorporated in Texas
and did not have business operations or conduct business in Kentucky. In addition,
they asserted that they were not Mouanda’s employer, they had not made any
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statement during the negotiation for the franchise agreement, and they had not
breached the franchise agreement as they were not parties to the contract between
the LLC and Cardinal.
Mouanda responded to both motions, first asserting that the
defendants’ ownership, operation, and interests were “so aligned as to make them
one entity.” Thus, she argued that piercing the corporate veil would be appropriate
to hold the parent corporation liable. She went on to argue that Jani-King
exercised a level of control over her that created an agency relationship between
them. In addition, Mouanda stated that she was an employee of Cardinal, and thus
she was entitled to prosecute her wage and hour claim as an individual, based upon
the economic reality of her relationship with Jani-King and the control Jani-King
exerted over her. She relied upon federal law to support this argument. Mouanda
continued to argue that Cardinal and the Jani-King defendants committed fraud by
requiring the unit franchisees to incorporate and by misrepresenting the benefits of
a franchise. She described the push to incorporate and invest personal capital as “a
scheme to obtain labor without following labor laws.” Mouanda objected to the
jurisdiction arguments, and she claimed to be the proper person to bring the fraud
allegation. Finally, Mouanda acknowledged that she was not a party to the
franchise agreement, individually, and stated she would be filing an amended
complaint to add the LLC as a party for the breach of contract claim. Mouanda
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believed discovery was necessary to detail the full scope of “the corporate
entanglements.” Cardinal and the Jani-King defendants filed separate replies
disputing Mouanda’s arguments.
On September 23, 2019, the circuit court entered a memorandum and
order granting the motions and dismissing Mouanda’s claims without prejudice.
The court first addressed whether Mouanda lacked standing to bring the claims in
the complaint. After summarizing the law related to standing when an LLC is
involved, including the Opinion of Turner v. Andrew, 413 S.W.3d 272 (Ky. 2013),
in which the Supreme Court of Kentucky held that an individual member of an
LLC does not have the capacity to sue as a real party in interest, the circuit court
observed and ruled as follows:
Similar to Turner, Plaintiff was the sole owner and
member in Matsoumou’s LLC. The record reflects that
Plaintiff acknowledged by her signature that she was
provided documentation from Cardinal Franchising
through a Franchise Disclosure Form, dated December 2,
2016, and by another Franchise Disclosure Form, dated
October 16, 2017. The record also reflects that the
Articles of Incorporation for Matsoumou’s LLC were
filed with the Kentucky Secretary of State on November
11, 2017. The record further reflects that Plaintiff, as
president of Matsoumou’s LLC, executed the Franchise
Agreement with Cardinal Franchising on February 28,
2018. Thus, the Franchise Agreement appears to be
between Matsoumou’s LLC and Cardinal Franchising
and, allegedly, Jani-King. Even if Cardinal Franchising
was perpetrating a fraud in assisting Plaintiff to
incorporate Matsoumou’s LLC as Plaintiff asserts,
Plaintiff cannot prove that she suffered any injury that
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resulted from Cardinal Franchising’s purported assistance
in incorporating Matsoumou’s LLC. As noted by the
Supreme Court of Kentucky in United Parcel Service Co.
v. Rickert, 996 S.W.2d 464, 468 (Ky. 1999), “In a
Kentucky action for fraud, the party claiming harm must
establish six elements of fraud by clear and convincing
evidence as follows: a) material misrepresentation b)
which is false c) known to be false or made recklessly d)
made with inducement to be acted upon 3) acted in
reliance thereon and f) causing injury.” Id. at 468, citing
Wahba v. Don Corlett Motors, Inc., 573 S.W.2d 357, 359
(Ky. App. 1978). All of the claims Plaintiff asserts in the
Complaint related to actions allegedly taken subsequent
to Plaintiff’s execution of the Franchise Agreement, in
her capacity as president of Matsoumou’s LLC.
Accordingly, Plaintiff lacks standing to assert the claims
asserted in the Complaint in this action as a matter of
law.
The court did not find any support for Mouanda’s argument that she should be
permitted to pursue her fraud claim under a modified theory of piercing the
corporate veil. Concluding that Mouanda lacked standing to assert the claims in
the complaint, the court dismissed the action without prejudice. This appeal now
follows.
Our standard of review of a motion to dismiss filed pursuant to CR
12.02 for failure to state a claim upon which relief may be granted is set forth in
Benningfield v. Pettit Environmental, Inc., 183 S.W.3d 567, 570 (Ky. App. 2005):
A motion to dismiss should only be granted if “it appears
the pleading party would not be entitled to relief under
any set of facts which could be proved in support of his
claim.” Pari-Mutuel Clerks’ Union v. Kentucky Jockey
Club, 551 S.W.2d 801, 803 (Ky. 1977). When ruling on
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the motion, the allegations in “the pleadings should be
liberally construed in a light most favorable to the
plaintiff and all allegations taken in the complaint to be
true.” Gall v. Scroggy, 725 S.W.2d 867, 868 (Ky. App.
1987). In making this decision, the trial court is not
required to make any factual findings. James v. Wilson,
95 S.W.3d 875, 884 (Ky. App. 2002). Therefore, “the
question is purely a matter of law.” Id. Accordingly, the
trial court’s decision will be reviewed de novo. Revenue
Cabinet v. Hubbard, 37 S.W.3d 717, 719 (Ky. 2000).
With this standard in mind, we shall review Mouanda’s claims.
For her first argument, Mouanda contends that the circuit court erred
in finding that she did not have standing to sue under Kentucky’s wage and hour
laws. She asserts that the court should have applied an economic realities test
adopted by the federal courts to determine whether she was an employee of Jani-
King. In support, Mouanda cites to several federal cases that relate to whether an
individual is an employee or an independent contractor, as well as to Acosta v.
Jani-King of Oklahoma, Inc., 905 F.3d 1156 (10th Cir. 2018). The Acosta Court
detailed the circumstances in that case and addressed whether the lower court
should have applied the economic realities test:
Jani-King is a janitorial company providing
cleaning services in the Oklahoma City area. The
company engages individuals, pairs of related
individuals, or small corporate entities which are
allegedly composed predominantly or entirely of single
individuals or pairs of related individuals to perform
janitorial work on its behalf through franchise
arrangements. Jani-King recently began requiring
individuals and pairs of related individuals—both those
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already affiliated with Jani-King and those who are new
—to form corporate entities, which then become the
named parties to the franchise.
Following an investigation into Jani-King’s
employment practices, the Secretary of Labor filed a
complaint against Jani-King, alleging violations of the
Fair Labor Standards Act and seeking an injunction to
require Jani-King to keep the requisite FLSA employee
records. Specifically, the Secretary asserted that
individuals who form corporate entities and enter
franchise agreements as required by Jani-King
“nonetheless personally perform the janitorial work on
behalf of Jani-King” and, based on the economic realities
of this relationship, are Jani-King’s employees under the
FLSA. (Appellant’s Opening Br. at 5.)
Jani-King filed a motion to dismiss on two
grounds: (1) under Rule 12(b)(6), the Secretary failed to
plausibly suggest that every franchise owner should be
treated as an employee under the FLSA, and (2) under
Rule 12(b)(7), the Secretary failed to name the
franchisees as necessary parties. The district court
granted Jani-King’s Rule 12(b)(6) motion and dismissed
the Secretary’s complaint without prejudice. The
Secretary then filed an amended complaint alleging that
the individuals who personally perform the janitorial
cleaning work for Jani-King through the franchise
arrangements are employees under the FLSA, and asking
that Jani-King be required to keep records about those
individuals. In response, Jani-King raised the same Rule
12(b)(6) and 12(b)(7) motions, arguing that the Secretary
is not free to ignore its corporate organization. The
district court again granted Jani-King’s Rule 12(b)(6)
motion—this time with prejudice—concluding the
amended complaint “ignores corporate forms” and does
not plausibly suggest the FLSA applies to all janitorial
cleaners. (Appellant’s App. at 183 & n.9.) The
Secretary now appeals.
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....
. . . [W]e conclude that the Secretary’s amended
complaint contains sufficient factual matter to state a
facially plausible claim for relief. The complaint
identifies individuals (those who “personally perform the
janitorial cleaning work”) who could qualify as Section
203(e)(1) “employees” under the economic realities test
if all the Secretary’s well-pleaded factual allegations
about the nature of the relationship between Jani-King
and these individuals are accepted as true and viewed in
the light most favorable to the Secretary. The complaint
also alleges that Jani-King has violated the FLSA as to
these employees by failing to comply with recordkeeping
requirements. These allegations are sufficient to state a
claim at this stage of the proceedings. In so concluding,
we make no determination as to the merits of the
Secretary’s case—we only hold that it survives this initial
Rule 12(b)(6) motion to dismiss.
Acosta, 905 F.3d at 1158, 1161-62 (footnote omitted). Mouanda also cites to the
federal case of Williams v. Jani-King of Philadelphia, Inc., 837 F.3d 314 (3d Cir.
2016), in which the Third Circuit addressed class certification sought by two
franchisees of Jani-King. We note that these franchisees were individuals rather
than LLCs.
In their responsive briefs, the appellees argue that, because the
franchisee in this case is an LLC, not Mouanda the individual, Mouanda lacks
standing to pursue her claims against them. The Matsoumou’s, LLC was created
by Mouanda in November 2017, several months before the franchise agreement
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between the LLC and Cardinal was signed on a date that Mouanda identified as the
date her claim accrued.
KRS 275.010(2) specifically provides that “[a] limited liability
company is a legal entity distinct from its members.” In Turner v. Andrew, supra,
the Supreme Court of Kentucky addressed the attributes of a limited liability
company as follows, specifically citing to the language of KRS 275.010(2) and an
LLC’s legal distinction from its members:
A limited liability company is a “hybrid business
entity having attributes of both a corporation and a
partnership.” Patmon v. Hobbs, 280 S.W.3d 589, 593
(Ky. App. 2009). As this Court stated in Spurlock v.
Begley, 308 S.W.3d 657, 659 (Ky. 2010), “limited
liability companies are creatures of statute” controlled by
[KRS] Chapter 275. KRS 275.010(2) states
unequivocally that “a limited liability company is a legal
entity distinct from its members.” Moreover, KRS
275.155, entitled “Proper parties to proceedings,” states:
A member of a limited liability company
shall not be a proper party to a proceeding
by or against a limited liability company,
solely by reason of being a member of the
limited liability company, except if the
object of the proceeding is to enforce a
member’s right against or liability to the
limited liability company or as otherwise
provided in an operating agreement.
Not surprisingly, courts across the country
addressing limited liability statutes similar to our own
have uniformly recognized the separateness of a limited
liability company from its members even where there is
only one member. See, e.g., O’Reilly v. Valletta, 139
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Conn.App. 208, 55 A.3d 583 (2012) (sole member of
LLC lacked standing to bring suit personally where LLC
was party to lease and operated the restaurant at issue);
Krueger v. Zeman Construction Co., 758 N.W.2d 881
(Minn. App. 2008) (individual who was sole member of
LLC had no standing to bring business discrimination
suit in her own name where relevant contract was
between LLC and corporation engaged in construction
business); Bankston v. Tasch, LLC, 40 So.3d 495 (La.
App. 2010) (even where LLC has sole member it is entity
separate and distinct from that member in terms of
procedural capacity); FTC v. Payday Financial, LLC,
935 F.Supp.2d 926 (D.S.D. 2013) (limited liability
companies organized under South Dakota law are
separate and distinct legal entities from their sole
member). It is indisputable that KRS 275.010(2) and
.155 similarly mandate that Billy Andrew, Jr. Trucking,
LLC be the named plaintiff in any suit asserting a lost
business income claim rightfully belonging to the LLC.
The Court of Appeals reasoned that because
Andrew was the sole owner of the business he was
necessarily the real party in interest, a status that allowed
him to properly advance the lost profits claim in his own
name rather than in the name of the LLC. The theory of
interchangeability underpinning this position was
explicitly rejected by this Court in Miller v. Paducah
Airport Corp., 551 S.W.2d 241 (Ky. 1977) in the context
of a solely-owned corporation. In Miller, the president of
a corporation that operated a cab service brought suit in
his individual capacity against an airport challenging the
legality of a lease. Id. at 242. The Court held that the
corporation was “an entity, separate, apart and distinct
from [Mr. Miller] himself,” despite the fact that Mr.
Miller owned the entirety of the corporation’s stock. Id.
This Court concluded that the corporation, and not Mr.
Miller in his personal capacity as the corporation’s
president, was the real party in interest to the claim,
declaring that such a distinction “is not trivial nor
supertechnical.” Id. at 243. The same conclusion is
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mandated here. The LLC and its solitary member,
Andrew, are not legally interchangeable. Moreover, an
LLC is not a legal coat that one slips on to protect the
owner from liability but then discards or ignores
altogether when it is time to pursue a damage claim. The
law pertaining to limited liability companies simply does
not work that way.
Turner, 413 S.W.3d at 275-76 (footnote omitted).
Based upon the holding above, we must agree with the appellees that
Mouanda lacked standing to bring suit against any of them. “To have standing to
sue, one must have a judicially cognizable interest in the subject matter of the
suit.” Bailey v. Preserve Rural Roads of Madison County, Inc., 394 S.W.3d 350,
355 (Ky. 2011). The proper plaintiff for this complaint should have been The
Matsoumou’s, LLC, the named franchisee in the franchise agreement with
Cardinal. And as the Jani-King appellees argued, Mouanda’s citations to the two
federal Jani-King decisions do not support her assertions herein. The Acosta Court
did not decide whether an individual has standing to pursue a claim after the
formation of an LLC, but merely held that the Secretary of Labor had survived the
motion to dismiss, and the Williams case did not include franchises that were
entered into by an incorporated entity. Therefore, we must hold that the circuit
court properly dismissed Mouanda’s complaint.
Based upon this holding, we need not reach the rest of Mouanda’s
allegations of error.
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For the foregoing reasons, the order of the Jefferson Circuit Court
dismissing Mouanda’s complaint without prejudice is affirmed.
ALL CONCUR.
BRIEF FOR APPELLANT: BRIEF FOR APPELLEES JANI-
KING INTERNATIONAL, INC.,
Ryan Fenwick AND JANI-KING LEASING CORP.:
Louisville, Kentucky
Thomas J. Birchfield
Paul E. Goatley
Louisville, Kentucky
BRIEF FOR APPELLEE CARDINAL
FRANCHISING, INC., D/B/A JANI-
KING OF LOUISVILLE:
Randall S. Strause
Andrew J. Williams
Louisville, Kentucky
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